As many are well aware, there are plenty of situations where current homeowners who hold a mortgage will be looking to refinance it, whether for lower monthly payments, more stable payment structure or for other reasons. But because certain specialty mortgage programs differ from conventional loans in several ways, there are those who wonder whether refinancing is allowed under certain such programs -- and a good example is those who have a current VA loan.
At Integrity First Lending, we're happy to offer VA loans, which are backed by the Department of Veterans Affairs and offer military veterans and spouses fantastic mortgage rates and other benefits. We also offer refinancing options for VA loans -- which, indeed, are possible within this program. Here's a primer on the kinds of refinancing options available to you, plus some of the eligibility standards and other details for those looking to go down this road.
Two Primary Types of VA Loan Refinancing
While this is a bit of a simplification, generally speaking there are two primary ways of refinancing a VA loan:
- Cash-out refinance: For those who need some cash for a variety of reasons, whether it's an emergency or some kind of debt repayment, you can use the VA refinancing program to capitalize on your equity -- including equity built up by regular payments -- to refinance your loan and secure additional cash. This option involves replacing your current loan with a new one for a larger amount, then you receiving the difference in cash.
- Streamline refinance: The more common form of refinancing, one where you can either lower your rate or stabilize your mortgage payments, is known as a streamline refinance. Also sometimes called an interest rate reduction refinance loan (IRRRL), this involves refinancing your current VA loan into a new one with the same or similar terms and conditions, but at either a lower interest rate or a more stable monthly payment. It's similar to a traditional mortgage finance in this way, though certain parts of the process will differ here.
When it comes to cash-out VA refinances, the requirements are pretty simple. In fact, the requirements in terms of how much equity you need in your home before you can go this route are even lower than for other loan types, which typically require 20% equity be earned in the home before a cash-out refinance can take place.
For streamline refinances, however, there are a few other details to be aware of. We'll go over those next.
Eligibility for VA Streamline Refinancing
To qualify for streamline refinancing, or an IRRRL refinance of your VA loan, the following three requirements must all be met in full:
- You already have a VA-backed home loan
- You're using the streamlined refinance to refinance this specific loan
- You can certify that you still live in, or used to live in, the home that's covered by the loan
In addition, if you have a second mortgage on the home, the holder of said mortgage must agree to make the new VA-backed loan the first mortgage as part of this arrangement.
Reasons for Obtaining a Streamline Refinance
Another area that's a bit more wide-ranging with regard to streamlined VA loan refinancing is the reasoning for doing so. There may actually be a few such reasons, including:
- Lower your interest rate: Perhaps the most common reason for refinancing is to lower your interest rate or switch to a more stable monthly payment. Some prime lending rates are now as low as 4%. That can make it easier to handle the higher payments on an existing mortgage.
- Increase your credit limit: If you have maxed out your original VA loan's borrowing power but still find yourself desiring additional home improvements or other enhancements to your property, you can increase that limit by refinancing into a larger-sized mortgage.
- Rolling in refinancing costs: Another possible reason is manage any fees associated with refinancing your existing VA loan. Fees sometimes come into play when you do this, and it can be easier to handle these upfront than over time.
There are other benefits of streamline refinances, as well. For one, within the VA program, there is no requirement for a new Certificate of Eligibility -- and on top of this, you even have the ability to change your mortgage structure from adjustable-rate to fixed-rate, a highly beneficial and useful feature.
Steps for Obtaining Streamline VA Refinancing
Here are the basic steps to follow if you're looking for an IRRRL VA loan refinance:
- Find a lender: Not all lenders will do these types of refinancing, though you can find qualified lenders online in a few minutes. Save the time and trouble by doing your research up-front and calling local lenders to ask if they can help. Terms and fees will vary, so you'll want to compare to find the best offers.
- Give your lender all required information: There may be several items you'll need to provide your lender, including your date of birth, Social Security number and details about the VA loan. You may also be required to provide documentation on your outstanding balance (if you're carrying it over), any second mortgages that are attached to the home (if applicable), income associated with your home's value and more. In addition, you will likely need to show the lender your original Certificate of Eligibility, or a verified copy of it.
- Follow lender instructions and pay closing costs: If you qualify, your lender will begin making arrangements for the closing and processing of your new loan. You will need to follow all instructions provided by your lender, such as providing necessary documentation and making sure you pay any fees at the time of closing.
For more on refinancing a VA loan, or to learn about any of our mortgage rates or other mortgage broker services, contact the team at Integrity First Lending today.
